The Man Who Knew Bernie’s Secret

A new documentary focuses on Harry Markopolos, Bernie Madoff’s nemesis, who fruitlessly tried to expose the master swindler for almost a decade.

After seeing the documentary Chasing Madoff, most Americans will wish there were more people on Wall Street like Harry Markopolos, the independent fraud investigator, who a decade ago stumbled upon Bernard L. Madoff, then just a billion-dollar Ponzi-scheme artist. I sure wish I’d met Harry.

By the time Madoff turned himself in, on Dec. 11, 2008, the Wall Street legend had concocted a huge pyramid scheme. On paper, his investors collectively had $65 billion, a pure fiction propped up by new investors brought in to pay off old ones redeeming their money. Madoff’s ruinous crime replicated Charles Ponzi’s small-time 1920s postage-stamp fraud—only Madoff’s lasted for decades, circled the earth and took in everyone from Hollywood director Steven Spielberg to Swiss bankers to Holocaust historian Elie Wiesel to European royalty. Madoff represented the first truly global financial scandal (unless you count mortgage-backed securities).Chasing Madoff opens Aug. 26 in theaters around the U.S. (http://cohenmedia.net/main.html has details). The film, based on Markopolos’ book, No One Would Listen, is less about the monster himself than about how, after a thankless nearly 10-year journey, a determined man showed that the onetime Nasdaq chairman was a financial serial killer.

Bernie Madoff isn’t the only villain in the film. The Securities and Exchange Commission comes out stinking, too.

A WALL STREET CASSANDRA,Markopolos (pronounced mark-uh-POLE-iss) worked for Rampart Investments in Boston, a firm that made money for clients trading options—the strategies that Madoff only claimed to be doing. Audiences unfamiliar with the details will be chilled by the tale of how Markopolos and his investigators, Frank Casey, Neil Chelo and Michael Ocrant, piled up evidence from Madoff investors and former employees. In addition to a high-profile legitimate brokerage business, Bernie ran a phony hedge fund that hadn’t made a single trade. Madoff was simply a con man who parked his doomed investors’ money in a demand-deposit bank account at JPMorgan Chase. His team of mostly uneducated back-office accomplices didn’t invest the cash, yet sent out millions of pages of made-up monthly statements showing paper profits from fake buy and sell orders that never crossed the ticker.

After doing the math on Madoff’s suspiciously consistent returns, Markopolos’ team approached regulators in Boston, then got the runaround—for roughly nine years!

The Securities and Exchange Commission comes out stinking in the film, although recently Markopolos praised the agency for creating a whistle-blower program and taking on the type of big cases that it once avoided.

Director Jeff Prosserman weaves in devastating commentary from the SEC’s inspector general, David Kotz, and Markopolos’ testimony to Congress, which rocked Wall Street and prompted the lawmakers to revisit securities legislation regarding hedge funds. (The SEC now has oversight for hedge funds, although it’s doubtful that would have helped it catch Madoff, who survived nearly a dozen deferential SEC examinations.)

The film recreates Markopolos’ growing paranoia, which at times seems unwarranted—he bought guns for himself and his wife, checked for bombs under his car and generally kept his children in lock-down mode. As he had no luck turning in Madoff to Wall Street’s supposed watchdog, Markopolos began to suspect Bernie had friends there. To this day, he believes that Madoff was laundering Colombian drug and Russian mob money. He notes that the FBI’s Madoff investigation is still active, and that Bernie hasn’t assisted investigators.

Markopolos also had no luck with the press, fruitlessly pressing Forbes and The Wall Street Journal (like Barron’s, owned by News Corp.) to pick up the story. Few knew that he existed untilMadoff’s arrest in 2008. One week later, the Journal’s front page hailed him as the whistle-blower who had served up Madoff’s scam to the SEC on a silver platter and had been dismissed as an arrogant kook. After that, Markopolos felt safe.

The movie brings us the first account of how no one—not even Markopolos—realized how many mom-and-pop investors Madoff had suckered. It also dramatizes their travails. One woman and her husband lost their life savings and now live in an RV; another testified at Madoff’s sentencing that she’d become a dumpster-diver.

As someone who questioned Madoff’s returns back in 2001 for Barron’s, I was moved by a scene in which Markopolos accepts an award from his fellow fraud investigators. After the stage lights dim, he weeps. His lament: If only I had done more, sooner.

AFTER MY 2001 STORY RAN, I often thought I had been wrong—or worse, crazy. Now, I look back and wish I had written more about Madoff; my original source, Ken Nakayama, then head of equity derivatives strategy at Deutsche Bank, also marveled at regulators’ silence after my article appeared. But then, if the world didn’t believe a fraud expert like Harry Markopolos, whom would it believe?

Chasing Madoff exposes this shadowy world of hedge funds, naïve investors and the lengths to which Wall Street will go to protect a golden goose like Bernie—who produced supposedly steady returns, year after year, with no questions allowed. Who else will we be chasing soon?

ERIN E. ARVEDLUND is the author of Too Good to Be True: The Rise and Fall of Bernie Madoff.